Intuitive Surgical Inc. Is Out of the Woods … for Now

Intuitive Surgical wins major court case, but there are more to come.

Shares of Intuitive Surgical (NASDAQ:ISRG) have been on the ropes for a year now, mainly due to slower system sales in the United States and questions about efficacy within the surgical community.

But another thorn in investors' sides has been the onslaught of lawsuits stemming from surgical complications while using Intuitive's da Vinci surgical system.

Source: Intuitive Surgical

Yesterday, shares of the company were up 3.5% on news that the company was acquitted of any wrongdoing in the first major court battle it faces.

The news wasn't that surprising given the details of the lawsuit. Put simply, a doctor performed a surgical procedure that he was warned against by Intuitive. The jury found this was enough to absolve Intuitive of any liability.

More to comeThe case, however, shouldn't be a clear sign that the danger of litigation is now over for the company. Bloomberg also reports that there are -- at the very least -- 25 other cases waiting to be heard stemming from complications regarding Intuitive's da Vinci system.

That being said, any maker of medical devices -- especially those used in surgical procedures -- has to deal with the threat of legal action. Earlier last year, several of the plaintiffs in cases against Intuitive tried to combine forces to file a class action lawsuit. That motion was denied because the total number of claims filed thus far still remains relatively low.

Keep your eye on what mattersFor long-term investors, the two variables to follow will be the reception to the company's new Xi system, and adoption rates of the da Vinci in procedures outside of its core in hysterectomies and prostatectomies.

Hospital spending budgets have been significantly restricted following the passage of the Affordable Care Act (ACA). This has led to tepid interest in purchasing daVinci systems. Before the onset of ACA, Intuitive was increasing its installed base of daVinci systems within the United States by double digits. Over the past year, however, that growth has actually gone negative.

Investors should realize that the new Xi probably won't be an immediate solution to these problems. Budgets remain tight at many hospitals as the effects of the ACA play out, and doctors need time to test the Xi's update features--especially its improved imaging and mobility--before convincing their administrations that it is worth the money.

And while hysterectomies and prostatectomies have been the proverbial bread-and-butter operations for the daVinci, the machine will need broader applications to justify the still-expensive stock price.

Doctors have been experimenting with other general surgical procedures for years, and investors should listen in on the company's July 22nd conference call for details on any recent successes with the Xi.

Author

Brian Stoffel has been a Fool since 2008, and a financial journalist for the Motley Fool since 2010. He tends to follow the investment strategies of Fool-founder David Gardner, looking for the most innovative companies driving positive change for the future. Follow @TMFStoffel